When oil prices began to decline in 2016, Russia's oil-dependent economy began to slump. Unfortunately, that slump does not appear to be righting itself very quickly, and may even deepen with the introduction of long embargoed Iranian oil to the market this year. As a result, the International Monetary Fund (IMF) has again slashed its forecast for Russia, downgrading it into an ongoing recession through the end of 2016 and beyond.
The downgrade is not overly surprising, given the IMF's warning to Russia that it would likely remain in a recession as it "continues to adjust to low oil prices and Western sanctions." While Russia is obviously the party most affected by this news, its neighbors and major trade partners in the Caucasus and Central Asian regions will likely feel the crunch, as well.
According to the IMF's most recent projections, Russia's economy will contract by a full percentage point this year. This is a sharp reduction compared to the IMF's earlier prediction of 0.6 percent growth, which it made as recently as October 2015. The current prediction shows Russia finally exiting its slump in 2017 with a rate of growth of one percent. However, many analysts question whether there will be a downgrade to that prediction eventually, thanks to increased oil supply and continuing low prices.
Russia's crisis began in 2014 when the ruble devalued in alarming single-day drops not seen since the infamously volatile days under the administration of President Boris Yeltsin in 1998. Current Russian President Vladimir Putin promised that the economy would turn around in 2016 when he addressed the nation during an end-of-the-year press conference in December. Although he admitted that the Russian government had overestimated the recovery of oil prices, he indicated a belief that the market would recover and that other sectors of the economy would fill the void in the coming year. Unfortunately, his promises that the nation had suffered the worst of this recession may have been premature.
According to an article published in Newsweek, polls conducted in Russia in January 2016 show that 60 percent of Muscovites and 41 percent of Russians at large believe the economic situation had worsened recently. According to the IMF's predictions, the sentiment may have been accurate.
Russia is not alone in its current economic crisis. According to the IMF, Brazil and a number of Middle Eastern countries, all heavily reliant on oil exports, are also feeling the pinch of lower oil prices. However, unlike Russia, the IMF had predicted broader recovery for those nations in 2016. Nevertheless, the IMF warns that recovery could be "frustrated by new economic or political shocks."